What is a contract?

We all make agreements with other people every day. However, not all of those agreements will be contracts. The difference between a casual agreement and a contract is that a contract is a legally binding agreement. This means:

You have the right to take the other person or company to court if they do not
carry out their side of the deal (and they have the right to do the same to you).
You get the protection of certain terms and conditions which the law says must part of the contract.

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Case study

"When my boiler broke down, one of my friends from work put me in touch with her mate, Mike, who was a plumber. Mike popped round the next day and did a couple of hours’ work. When he finished the boiler seemed to be working fine, so I paid him the sixty quid we had agreed on. A couple of weeks later the boiler broke down again. I called Mike but he he said he didn’t have time to come and look at it. I had to call out an emergency plumber. I was told that Mike’s botch repair job had damaged the boiler so badly that I would have to buy a new one. When I called Mike to complain, he said he didn’t owe me anything because he had only been doing a favour for a mate, and we had not signed a contract.

In the end, I took him to court. It was a difficult and stressful process, but thankfully, the court said I did have a contract - even though I had not signed anything. They said that Mike had broken the contract by doing poor quality work and damaging my boiler. I got compensation to cover the cost of a new boiler, the money I had to pay the emergency plumber."

Louise

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Case study

'I wanted to get a conservatory built at the back of my house and was shopping around for the best deal. One company sent over a couple of builders to have a proper look at my house and measure up. After a couple of hours they gave me a written estimate of £12,500. This was the lowest quote and I liked the firm, so I rang up the next day to tell them to go ahead on the basis of their estimate. Just before building started they rang me and said that they were going to have to charge me £15,000 because the company supplying their materials had put its prices up. I took some legal advice and was told that I had a contract with the glazing firm for them to build the conservatory for £12,500. Their written estimate was an offer, which I had accepted, and it was too late for them to change their minds. When my solicitor wrote to the firm about it they said they would to do the work for £12,500 as agreed'.

Ahmed, Solihull

There are four basic building blocks needed for a contract and if they are not all there, it is not a contract.

Making an offer

The first step towards creating a contract is for someone to make an offer - to mend a boiler, buy a car, give you a job, and so on. The offer needs to be clear, firm and final. It will not be a proper offer if it is too vague or if important information, like the price, is missing.

Accepting an offer

The next step is for someone to accept the offer. This is the moment when the contract is created. Usually it is obvious when this has happened. But sometimes it can be difficult to work out exactly when the contract is made. This matters because as soon as there is a contract, you can not get out of it or change it, unless the other person agrees.

Price

An agreement is not legally binding contract unless both the person offering and the person accepting are exchanging something of value with each other. This is the 'price' paid under the contract. Lawyers sometimes call it the 'consideration'. The price does not have to be money, although it often is. So for example, in an employment contract, the 'price' paid by the employer to the employee is wages and the 'price' paid by the employee back to the employer is the work he or she does. If the ‘price’ paid is money, it does not have to be at the full going rate or the market value. But it cannot be a gift.

The price might be a promise to do something for the other person in the future. For example, if you book tickets for a concert, you pay money to the ticket agency and in return they promise you will be let into the concert. But it will not count as a contract if the promise is for something that has already happened.

It will not count as a contract if the promise is for something that has already happened and if someone gives you something for nothing, or promises to, it is not a contract because only one person benefits. For example, if a friend promises you that you can have their old mobile phone, and then they give it to someone else instead, you will be pretty upset. But you don not have any legal right to the phone because your friend was not going to get anything from you in return (gratitude does not count!). If you agreed to pay your friend for it, no matter how little the amount, it would have been a contract.

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Price tag myth

If you walk into a posh shop and see a designer jacket with a £10 price tag you might think your luck's in and the shop has to sell you the jacket at the marked price, even though it is obviously a mistake. In fact they do not have to - if the shop assistant realises the mistake before you pay, they can refuse to sell it at that price. This is because, legally speaking, you are offering to buy the jacket for £10 and the shop is free to accept or reject that offer. Sometimes this happens because a shop makes an innocent mistake with its labelling. But if you find that a shop is doing this regularly it might be a deliberate con and you could report them to Trading Standards.

Intentions

Lastly, the people making the contract have to intend it to be legally binding. This means that they would want the right to take the other person to court if they do not keep their side of the deal. This is why many of the everyday agreements we make with our families and friends are not contracts, even if the other building blocks are there. You might agree with your friend in the pub 'you buy this round and I will get the next'. Your friend might be pretty fed up if you go home without buying your round, but they would not want to be able to take you to court over it!

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You may be able to get out of a contract if you entered into it, when you:

were under 18 or
if you lacked mental capacity.

If you are in this position, try to get advice. See our Help directory for useful contacts.

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Sometimes it is obvious when a contract is made - like when you sign a lease or an employment contract. But it is not always so clear. We enter into contracts all the time without even thinking about it.

There are some situations where you can, unknowingly, get stuck with a contract that you do not really want.

Common situations where you may make a contract without realising are:

Ordering or booking over the Internet - if you make a contract over the phone or using the Internet, there are laws to protect you. You must be given clear and full information to help you make a decision about whether to buy and you usually get a ‘cooling off’ period. A cooling off period is a specified length of time when you can get out of the contract.
Over the telephone - an agreement over the telephone can be a contract. It is as legally binding as a written contract. Any booking made on an automated telephone booking service will usually be a contract.
Ordering something in a shop. Always check whether you will have to buy the item you have ordered, or if you will be free to change your mind.

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‘But I have not got anything in writing!’

It is a common mistake to think you have not got a contract because you have not got anything in writing. In fact, most contracts do not have to be in writing and many are not (just like the first example above, when the whole contract was completed without anyone writing anything down).

As long as you have a clear agreement and the building blocks for a contract are there, you will have a contract whether it is in writing or not. Having said that, it is always a good idea to get something in writing if you can - it helps to show what has been agreed if there is a dispute about it later on. If you have not got anything in writing, it often ends up being one person’s word against another.

If you are an employee, you have a contract of employment whether or not it is put into writing. You have a right to ask your employer to put down the main terms of your contract in writing if this has not been done already.

However, some agreements like leases, contracts to buy property, and consumer credit agreements must be in writing.

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Solving real-life examples

‘My neighbour's son is fitting some new windows for us but it's all very informal and we haven't been given anything to sign. Will we have any rights if things go wrong?’

As long as you have a clear agreement with the fitter - including how much you are paying - then you will have a contract even if you have nothing in writing. However, you should think about writing down what has been agreed in a letter - including the price, a description of the work and the date you have agreed it should be done by - and giving it to the fitter. (Keep your own copy). This will help avoid any argument about what was agreed further down the line. If you pay cash, you should ask for a receipt, even if this is handwritten.

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This is the person or organisation that you entered the contract with. Sometimes it is obvious or easy to find out because you have a written contract which clearly shows who made the offer, who accepted it and what ‘price’ was agreed. But sometimes it is not easy to know who your contract is with. A good way to find out is by writing to anyone who you think your contract might be with and explain the issue. They should tell you whether or not they are the person or organisation who your contract is with. You can also use some of the tips in our guide on Who to sue to help you identify who your contract is with.

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Solving real-life examples

‘I recently took a faulty computer back to the shop I bought it from, but they told me I have to take it up with the manufacturer. Who is my contract with?’

When you buy something in a shop, your contract is with the shop, so if there's a fault, it's up to the shop to sort things out. In some situations the manufacturer may also be responsible -but your first point of call should always be the shop.

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Case study

"I wanted a new phone and decided to switch to a cheaper network, so I rang my old provider and told them I wanted to cancel my contract. I was surprised and upset when they refused. They pointed out a bit in their terms and conditions which said that once you start paying for the phone contract you cannot get of it unless you pay for all the remaining months in one go. In other words, I was stuck with my old provider unless I paid them £380. I wish I had read the terms and conditions in the first place because then I would have got a 12 month contract instead of a 24 month one".

Savita, Norwich

What are terms and conditions?

'Terms and conditions' is a phrase often used to mean the rights you have under the contract and also what obligations you have. For example, if you order a new cooker, it might be in the terms and conditions that the cooker will be delivered within a week (that is your right) but it might say that someone has to be at home to take the delivery (that is your obligation). Terms and conditions might be individually negotiated, for example if you negotiate with each other over the price. Or they might be already set out, like when a company has a standard set of terms and conditions, which are the same for every customer. Every contract has terms and conditions - whether it is in writing or not.

If you have a written contract you would think it would be pretty easy to find out what the terms and conditions are. Sometimes it is, because all of the terms and conditions are usually written down in one place. But often, they are hidden away in "the small print".

The small print often contains the most important bits of your contract - for example, what you can do if you change your mind about what you have bought.

If the small print has been drawn to your attention, when you make an agreement, it will usually be part of your contract.

If you feel that you have been duped into a bad deal because you missed something in the small print, see Unfair terms and conditions below.

Sometimes, as well as being in small print, terms and conditions are found in places you might not think of looking.

For example, if you turn a ticket over you may find some of the terms and conditions on the back of it - it may tell you whether you are entitled to a refund if the event is postponed, or whether the venue can throw you out if you get too rowdy.

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Read before you sign

Sometimes we are in too much of a hurry or too embarrassed to read through pages and pages of small print before signing something.

But if you sign a contract you will normally not be able to claim later that you did not agree to what is in it, even if you had not read it at the time.

Reading before you sign is the only way to make sure you are not agreeing to something you do not want to.

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Solving real-life examples

‘I signed up for a twelve-month gym membership in January but am moving away from the area and want to cancel. What can I do?’

You need to check the small print of your agreement with the gym.

If it says you can cancel your membership during the year then you can - although you may find there is a penalty for doing so.

If not then you'll have to keep paying for the full year unless you can reach some agreement with the gym.

If you just stop paying, you'll almost certainly be in breach of your contract. What will happen due to this breach will depend on what is says in your membership agreement. It may say that you may have a pay a fee on demand, your membership will be suspended or terminated (which likely means you will also have to pay an early termination fee), or a referral to a debt collection company.

Where to check for terms and conditions:

Online, the booking page may well have a link to standard terms and conditions - as long as they are mentioned on the booking page and are easily accessible they will be part of your contract.
If you are buying from a catalogue, the small print is often separate from the booking form - you may find it elsewhere in the catalogue.
The back of an order form.
If you buy a ticket, check the back of it. There may be some terms and conditions printed on it, or it may refer to some that you can find elsewhere.

Notices displayed in places like shops, hotels, theatres and car parks can also be terms and conditions. Here are a few examples:

'Refunds given only for returns made within 14 days of purchase.'
'We cannot accept liability for any damage to your vehicle while parked in this car park.'
'Latecomers will not be admitted until the interval.'

Provided the notice is clearly visible when you are handing over your money, or parking your car, it will form part of your contract.

Unfair terms and conditions

The law can cancel out certain terms and conditions that are ‘unfair’ to protect people. For example, if the contract gives one person the right to end the contract whenever they like, but the other person cannot do that, it is likely to be unfair. Contracts can often be unfair when they are between a company and a ‘consumer’ (a consumer is an individual who is buying for themselves, not for their business). If you feel you have got a raw deal from a contract, it may be worth seeking advice from an adviser - even if you have agreed to the terms and conditions you think are unfair.

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‘Is it legal?’

Even if you have a contract, the courts may not be able to help you if your contract is ‘illegal’ - if it contains an agreement to break the law. A common example of an illegal contract is when a worker agrees to be paid ‘cash in hand’, knowingly avoiding tax and National Insurance. If you have an illegal contract, you will almost certainly lose your right to get compensation from the other side if something goes wrong.

Statutory Rights

As well as the terms and conditions that you agree, the law sometimes automatically puts other terms and conditions into your contract to make it fairer (even if your contract is not written down, the law still inserts these terms into your contract). These are often referred to as ‘statutory rights’. You can rely on these rights whether they have been agreed or not. Statutory rights usually come up when you are buying goods or when you pay someone for a service, like a holiday company or a builder. Here are a few examples of when your statutory rights would apply:

You are buying a new TV - the law says it must be safe to use and of a quality that most people would be happy with.
If you see a T-shirt advertised as 100% cotton, it must not be made out of anything else because goods have to match their description.
If you have to call in a plumber to sort out a drainage problem - they have to carry out the job to a standard you would expect of a decent plumber. So, if the plumber botches the job, they have broken the contract.

If you buy something and later realise it is faulty, it is your statutory right to take it back to the shop and get your money back, no matter what the shop’s refund policy is. But if there is no problem with the goods and you simply change your mind, the shop only has to follow its own refund policy. This is often set out in a notice next to the till and is one of the terms of your contract.

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Warning!

You have fewer statutory rights when you buy goods privately. This means that the seller is not acting in the course of their business. The difference is that the thing you are buying only needs to be ‘as described’. For example, it is a private sale when you buy a car from an individual owner who is not in the car trade. Also, watch out for traders posing as private sellers - they may be trying to make you think you do not have rights when you do!

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Distance selling

‘Distance selling’ is when a product or a service is sold through the TV, by mail order, over the phone or through text. ‘Online selling’ is selling a product or service through the internet. There are laws to protect you when you buy something through online and distance selling.

Key information must be provided - a seller must provide a buyer with key information in some format that can be saved for future reference such as on paper or email. It can be given verbally if it is a verbal contract. These differ if you are buying online.
Right to cancel – generally, you have 14 days from the day you receive the goods or agree to the service to cancel it. There are some exceptions such as DVDs if the seal is broken or perishable items.
The seller is responsible for the condition of the goods until you receive them.
You can get a full refund if you receive faulty goods or bad service.
Your goods must be delivered within 30 days unless you have agreed a different time frame. If your goods are not delivered within the agreed time frame, then you may be able to cancel the contract and get a full refund.

Online selling

The distance selling rules set out above also apply for online selling. And on top of that there are some extra rules to protect you when you buy online:

As stated above, the key information that must be provided is slightly different when you are buying online. This key information must be sent to you as soon as possible such as through email.
If you have bought digital content, such as a computer game or a streaming service, and it is faulty, you can get it repaired or replaced. If this is not possible, then you can get a price reduction. A price reduction can be up to a full refund.
If you buy digital content, you no longer have the right to cancel in 14 days as you would for physical products. You must be aware and consent to lose this right before purchasing the digital content. It must also be stated in the pre-contract information (which may be in the terms and conditions) and in the confirmation of your contract (which may be a confirmation email).

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Case study

I was looking around for a streaming service to sign up for and I came across a few that I was considering. I know from buying products online that you usually get 14 days to cancel your order with no charge, so I thought to sign up to one, give a whirl for a few days or so and if I didn't like it, then I'll just cancel it, get my money back. and get the other one. After signing up and watching for a few days, I wanted to cancel this streaming service, but I was told that the 14 days right to cancel is lost after you stream content and that it was contained in their terms and conditions. I hadn’t realised the rules were different for online streaming!

Liz, Cambridgeshire

GOV.UK sets out what a seller must do before and after and order is placed and deals with cancellations with online and phone, TV, text message or mail order purchases. It also sets out the exceptions that these rules in both cases do not apply to.

If you believe that the provider has not followed these laws then it may amount to a breach. See our section below on Breach of contract on what to do.

Buying from abroad?

Be aware that if you make a contract with someone in a different country, a different law may apply.

Buying from a country in the European Union (EU) after Brexit

The UK has left the EU, but at the moment most of your consumer rights remain the same. For example, you will still have specific rights on faulty goods and cancellation rights.

When you buy something online from a country in the EU, it is unlikely that you will be able to make a claim about an EU product in the UK court system.

You MUST always check the terms and conditions offered by the seller, and the standard terms of the seller’s EU country also. This is to find out which country’s law will apply as your protection will be different from when you buy from a UK retailer.

Buying from another country outside the EU

If you buy something from a country outside the EU, the law for the country you are buying from will affect what your rights are. For example, if you buy something from New York, US consumer law will apply.

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When you buy something, the contract usually happens very quickly - you hand over your money and you take the item you bought. But some contracts can go on for a very long time, like a lease or an employment contract.

These longer contracts can come to an end in a number of different ways; here is a summary of the most common:

A contract could come to a natural end if both sides have fulfilled their sides of the bargain, for example, if building work has been completed and paid for.
Contracts can finish at any time if both sides agree to it.
The contract might give the parties a right to end or 'terminate' the agreement; this is often at a certain time, or with a period of notice.
If one person does not carry out their side of the bargain, they have broken the contract. This can sometimes mean that the contract can not carry on and the other person can try to get compensation.

If you are stuck in a contract that you are not happy with and you do not know how to get out of it, you should get in touch with an adviser - see our Help Directory. There may be a way of ending the contract legally. If you just stop fulfilling your side of the bargain, the other person might be able to take you to court.

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A breach of contract happens when one of the people or organisations in the contract fails to do something in the contract. This breach can be something that is agreed intentionally either in writing or verbally in the contract or something that is implied by the law. These are called ‘express terms’ and ‘implied terms’. If something is ‘implied by the law’, this means that the entirety of the law does not need to be written or said , but it still needs to be obeyed by all people who are in the contract. Implied terms are just as important in a contract as express terms.

If the person or organisation you made the contract with breached it, you may be entitled to a replacement or repair of the goods, repeat of the service, or partial or full refund depending on the circumstances.

What to do when things go wrong

Act quickly - there is often a time limit on making a complaint.
If there is a problem with something you have bought, stop using it as soon as you realise there is a problem.
Collect all the relevant paperwork together. Even if you do not have a written contract, you may have emails, texts, letters, invoices and receipts or copies of order forms which can tell you what has been agreed.
Depending on the situation, it is usually worth raising any problems directly with a store manager or customer services to start with. Many businesses are happy to put things right. Do not always rely on manufacturer’s warranties.
If you do not get anywhere, you need to put your complaint in writing. Find out whether there is somebody responsible for customer complaints in the organisation and, if so, address or copy your letter to them. Set out your complaint as clearly as you can and set a deadline for them to come back to you. It is a good idea to get some proof of postage.
If you do not get a response, send another letter making it clear that you will take legal action if they do not respond.
Keep a note of any conversations you have and keep copies of all correspondence.
Find out if the company belongs to a trade organisation or is regulated. Some organisations are able to help resolve disputes. For example, if it is a dispute with a travel company, the travel regulator ABTA may help.
Consider alternative dispute resolution – ways of sorting out a problem before or instead of going to court. See our guide on sorting out problems before or instead of going to court for more information.
If all else fails, you might consider legal action. A solicitor or adviser at your local law centre, Citizens Advice Bureau or other advice agency can advise you how to go about this - See our Help directory. Our guide, Should I sue?, will take you through key questions to help you decide if legal action is for you.

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What is misrepresentation?

Misrepresentation is when you are told something untrue or misleading before you enter into a contract. If someone says something which isn't true, and you go ahead with the contract because of what they have said you may be able to claim compensation for misrepresentation.

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Alternative Dispute Resolution – a range of options for resolving disputes, often without going through the process offered by the courts.
Consideration – something of value that you need to give the other person in the contract in exchange for their goods or service. It does not need to be money but cannot be seen as a gift.
Consumer credit agreement – the contract between and individual and lender where the individual borrows money from the lender.
Consumer rights – rights to protect you from bad goods and services and unethical or illegal traders.
Contract of necessaries – goods or services that are deemed as necessary for daily life or viewed as beneficial to them such as food or employment.
Cooling off period - a specified length of time when you can get out of the contract.
Goods – a physical product such as clothes.
EU directives – law set by the European Union that sets out a goal that all countries that are a part of the European Union must achieve.
Express terms - something that is agreed intentionally either in writing or verbally in the contract.
Implied by law – a legal requirement that an individual must follow but is not physically written in a document other than in the law itself.
Implied terms – the rights and responsibilities a person in a contract has and must follow by law but are not physically written into a contract.
Legally binding contract – if you fail to do what is required of you in the contract, the other person in the contract can take you to court.
Market value – how much something is worth if it was sold in the present time.
Mental Capacity – the ability to make your own decision. In the context of entering a contract, it is the ability to understand your rights and obligations under the contract and agree to them.
Party – how you refer to the persons who have agreed to the contract.
Penalty – punishment for failing to do something in the contract. This could be a fine.
Statutory rights – an individual’s legal rights that have been granted by the government through statute.
Terminate – stopping a contract from continuing.
Terms and conditions – is a contractual document between a service provider and a person who uses their service.
Voidable – is legally valid but can be invalidated under certain circumstances. In the context of a contract, this means that the terms of the contract have to be done by each person but the contract has the ability to be cancelled.
Warranties – a promise in a contract from one party to the other.
Written terms – the rights and responsibilities written down in the contract that each person who is in the contract has and must follows.

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Disclaimer

The information in this guide applies to England and Wales.

The law is complicated. We have simplified things in this guide. Please do not rely on this guide as a complete statement of the law. We recommend you try and get advice from the sources we have suggested.

The cases we refer to are not always real but show a typical situation. We have included them to help you think about how to deal with your own situation.

Acknowledgments

This short guide was written and produced by Advicenow and
updated thanks to funding from Help Accessing Legal Support (HALS).

This Christmas, help more people to solve their legal problems

What is a contract?

Case study

If we’ve helped you, please help us

This is just one of our resources to help you. You may also be interested in:

Case study

Making an offer

Accepting an offer

Price

Price tag myth

Intentions

‘But I have not got anything in writing!’

Solving real-life examples

Solving real-life examples

Case study

What are terms and conditions?

Read before you sign

Solving real-life examples

Where to check for terms and conditions:

Unfair terms and conditions

‘Is it legal?’

Statutory Rights

Warning!

Distance selling

Online selling

Case study

Buying from abroad?

Buying from a country in the European Union (EU) after Brexit

Buying from another country outside the EU

What to do when things go wrong

What is misrepresentation?

Disclaimer

Acknowledgments

Related content

Site search:

This Christmas, help more people to solve their legal problems

What is a contract?

Getting started

Case study

If we’ve helped you, please help us

This is just one of our resources to help you. You may also be interested in:

How do I know if I have a contract?

Case study

Making an offer

Accepting an offer

Price

Price tag myth

Intentions

How contracts get made

‘But I have not got anything in writing!’

Solving real-life examples

Who is my contract with?

Solving real-life examples

What does my contract say?

Case study

What are terms and conditions?

Read before you sign

Solving real-life examples

Where to check for terms and conditions:

Unfair terms and conditions

‘Is it legal?’

Statutory Rights

Warning!

Online and Distance selling

Distance selling

Online selling

Case study

Buying from abroad?

Buying from a country in the European Union (EU) after Brexit

Buying from another country outside the EU

Ending a contract

Breach of contract

What to do when things go wrong

What is misrepresentation?

What does it mean?

About this guide

Disclaimer

Acknowledgments

Site search: